Problem 14A-5 Prepare and Interpret a Statement of Cash Flows [LO14-1, LO14-4]

Mary Walker, president of Rusco Company, considers $39,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $34,000 in cash was available at the end of 2014. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.

Rusco Company Comparative Balance Sheet July 31, 2014 and 2013
	2014		2013
Assets
Current assets:
Cash	$	34,000	$	55,800
Accounts receivable		222,800		234,700
Inventory		267,100		207,400
Prepaid expenses		20,300		37,800
Total current assets		544,200		535,700
Long-term investments		147,000		215,000
Plant and equipment		898,000		769,000
Less accumulated depreciation		219,500		195,700
Net plant and equipment		678,500		573,300
Total assets	$	1,369,700	$	1,324,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	192,100	$	250,900
Accrued liabilities		9,900		18,800
Income taxes payable		57,200		48,500
Total current liabilities		259,200		318,200
Bonds payable		257,000		138,000
Total liabilities		516,200		456,200
Stockholders equity:
Common stock		642,500		695,000
Retained earnings		211,000		172,800
Total stockholders' equity		853,500		867,800
Total liabilities and stockholders' equity	$	1,369,700	$	1,324,000

Rusco Company Income Statement For the Year Ended July 31, 2014
Sales		$	1,180,000
Cost of goods sold			737,500
Gross margin			442,500
Selling and administrative expenses			315,650
Net operating income			126,850
Nonoperating items:
Gain on sale of investments	$29,500
Loss on sale of equipment	(9,800)		19,700
Income before taxes			146,550
Income taxes			43,870
Net income		$	102,680

The following additional information is available for the year 2014.

a.	The company declared and paid a cash dividend.
b.	Equipment was sold during the year for $59,200. The equipment had originally cost $128,000 and had accumulated depreciation of $59,000.
c.	Long-term investments that had cost $68,000 were sold during the year for $97,500.
d.	The company did not retire any bonds payable or repurchase any of its common stock.

Because the Cash account decreased so dramatically during 2014, the companys executive committee is anxious to see how the income statement would appear on a cash basis.

Required:

1.

Using the direct method, adjust the companys income statement for 2014 to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)

Rusco Company
Direct Method of Determining the Net Cash flows from Operating activities
Sales
Adjustments to a cash basis:
		0
Cost of goods sold
Adjustments to a cash basis:
		0
Selling and administrative expenses
Adjustments to a cash basis:
		0
Income taxes
Adjustments to a cash basis:
		0
		$0

Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2014. (Cash outflows and amounts to be deducted should be indicated with a minus sign.)

Rusco Company
Statement of Cash Flows
For the Year Ended July 31, 2014
Operating activities:
		$
	$
	$
Total cash disbursements
Investing activities:
		59,200
Financing activities:
		0
Beginning cash and cash equivalents
Ending cash and cash equivalents		$